Rhode Island adopts regulations to slow health-care costs — and they appear to work

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As the price of health care in the United States continues to accelerate — to the consternation of both patients and providers — it’s refreshing to find one state pilot project that appears to prove that implementing mandatory price controls can actually work.

Some states are keen to adopt regulations to slow health-care spending growth, but few have done so, therefore little is known about whether price controls could truly bring costs down.

So Stanford Health Policy’s Sanjay Basu and colleagues at Harvard and Brigham and Women’s Hospital set out to investigate the first such program.

Rhode Island adopted affordability standards in 2010 that imposed price controls — particularly inflation caps and diagnosis-based payments — on contracts between commercial insurers and hospitals and clinics. It also required those commercial insurers to increase their own spending on primary care coordination services, which help ensure a patient's caregivers are working together efficienty.

The results were quite promising.

The researchers compared spending among 38,000 commercially insured adults in Rhode Island to the spending of 38,000 matched adults in other states from 2007 to 2016. 

Their results, just published in Health Affairs, show that fee-for-service spending among the Rhode Island group — in comparison with out-of-state health care enrollees, decreased by $76 per enrollee after implementation of the policy, or a decline of 8.1 percent from 2009 spending. By contrast, the primary care coordination spending (not fee-for-service) went up by $21 per enrollee, which is good, Basu noted, because those services are designed to prevent more costly medical needs such as emergency department visits. 

“It is extremely rare to see a health-care intervention that actually slows the growth in spending,” said Basu, a primary care physician and epidemiologist. “Most people talk about controlling spending, and none of the interventions address the fundamental problem: the inflation in prices of health-care services.”

Basu, an assistant professor of medicine, said the researchers found that total spending growth decreased, driven by lower prices concurrent with the adoption of price controls.

“The Rhode Island experience indicates that states can slow total commercial health-care spending growth through price controls while maintaining quality,” the authors wrote. “The standards provide an important policy test of a bold, large-scale, multi-payer reform coordinated by a state government to reduce the growth in commercial-sector health care spending.”

The Rhode Island’s Office of the Health Insurance Commissioner implemented the set of affordability standards in 2010 for all commercial insurance companies in the state. Chief among the price controls were: 

  1. Capping the annual price inflation equal to the Medicare price index, plus 1 percentage point for both inpatient and outpatient services;
  2. Transitioning hospital payments from per-diem to value-based payments based on outcomes — such as how many patients avoid infection after a surgery — and those based on diagnosis-related groups;
  3. And increasing the share of spending on primary care services by 1 percentage point per year from 2010 to 2014 without raising consumer premiums.

“We importantly did not see a decline in care quality, which may be due to improved primary care and more avoidance of emergency rooms and hospitals in favor of preventive and coordinated outpatient healthcare, which is often cheaper,” Basu said.

The researchers believe the results of their evaluation “have important implications for policymakers seeking to slow the growth in health-care spending.

“State regulators in Rhode Island achieved among the largest total health-care spending changes observed from payments reforms to date,” they wrote.